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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

THE ROWE COMPANIES

(Exact name of registrant as specified in its charter)

None

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES X     No             

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the close of the period covered by this report.

THE ROWE COMPANIES

INDEX

PART 1—FINANCIAL INFORMATION

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 2, 2003 AND MARCH 3, 2002

UNAUDITED

See notes to consolidated financial statements

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS

ENDED MARCH 2, 2003 AND MARCH 3, 2002

UNAUDITED

See notes to consolidated financial statements

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS

ENDED MARCH 2, 2003 AND MARCH 3, 2002

UNAUDITED

See notes to consolidated financial statements

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

Note 1—  The Rowe Companies is comprised primarily of Rowe Furniture, Inc., its core upholstered furniture subsidiary; The Mitchell Gold Co., a producer of upholstered and leather furniture (see Note 11); and Storehouse, Inc., a 60 store retail furniture chain.

Note 2—  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of March 2, 2003 and the results of operations and cash flows for the three month periods ended March 2, 2003 and March 3, 2002. Selling and administrative expenses include $687,000 and $663,000 of retail delivery expenses for the three months ended March 2, 2003 and March 3, 2002, respectively.

Note 3—  The results of operations for the three months ended March 2, 2003 and March 3, 2002 are not necessarily indicative of the results to be expected for the full year.

Note 4—  Accounts receivable are customer obligations due under normal trade terms. The Company sells its products to distributors and retailers in the residential home furnishings industry, including traditional furniture retailers and specialty home furnishings stores. Management performs continuing credit evaluations of its customers’ financial condition and although generally does not require collateral, letters of credit may be required from customers in certain circumstances. Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. Any accounts receivable balances that are determined to be uncollectible, along with a general reserve are included in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to us, management believes the allowance for doubtful accounts as of March 2, 2003 is adequate. However, actual write-offs might exceed the recorded allowance.

Note 5—  Inventory components are as follows:

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

Note 6—  As previously reported, the Company restructured its retail operations by combining two subsidiaries into one, to operate under the Storehouse name. During 2002, the Company recorded restructuring, store closing and other charges relating to the restructuring, totaling $2,581,000. Of this total, $2,062,000 was utilized during 2002, with the remaining $519,000 reserve available for lease termination costs expected to be incurred in 2003 and beyond.

The estimates of lease termination costs are based in part on third-party advice regarding the time required to sub-lease such space as well as the rate per square foot at which such space may be subleased. Actual time to sublease and the rate per square foot of any subleases may differ from such estimates. As conditions warrant, the Company will make appropriate adjustments to these estimates. The following table outlines the components of the restructuring and related charges recorded as of December 1, 2002, including non-cash components of the charges and the balance of the reserve account at March 2, 2003:

No additions to the restructuring and related charges were made during the first quarter of 2003.

Note 7—  The following table shows the components of the earnings per share computations shown in the Consolidated Statements of Income.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

The dilutive share base for 2003 and 2002 excludes incremental shares of 1,961,348 and 1,824,880, respectively. These shares are excluded due to their anti-dilutive effect.

Note 8—  The Company’s operations are classified into two business segments: wholesale and retail home furnishings. The wholesale home furnishings segment manufactures upholstered furniture. Upholstered furniture includes sofas, loveseats, occasional chairs and sleep sofas, covered with fabric or leather. The retail home furnishings segment sells home furnishings and accessories to customers through Company-owned stores. These products consist of upholstered furniture (primarily obtained from related companies), case goods and home accessories. The other category is comprised of additional subsidiaries reviewed by management including parent company expenses.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

Note 9—  The components of comprehensive income (loss) for the three months ended March 2, 2003 and March 3, 2002, are shown below:

Note 10—The Company uses the intrinsic value method to account for stock-based employee compensation. As the Company’s awards of stock options carry an exercise price equal to the fair market value of the stock on the date of grant, no accounting cost is reflected in the Company’s Consolidated Statements of Operations. Had the Company utilized the fair value based method of accounting for stock-based employee compensation, the impact on earnings and earnings per share would have been as follows:

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

Note 11—During April 2003, the Company reached agreement with the purchaser and announced the sale of its Mitchell Gold manufacturing subsidiary, to be effective as of the close of business April 2, 2003. Included in the consolidated financial statements as of March 2, 2003 were total assets of $45,993,000 and liabilities of $9,012,000, relating to Mitchell Gold, consisting of the following major classes of assets:

Proceeds from the sale are expected to be approximately $39,750,000, subject to adjustments for changes in certain working capital items as of the closing date. The gain or loss on the sale is not expected to have a material effect on the results of operations of the Company.

In addition to the assets and liabilities shown above, the Company anticipates utilizing approximately $12.8 million of proceeds to settle the obligation under the long-term earn-out provisions of the original Mitchell Gold purchase agreement, approximately $4.5 million for expenses and other payments associated with the sale, and the balance, approximately $22 million, to reduce the Company’s outstanding long-term debt.

Included in the Company’s consolidated statement of income for the three months ended March 2, 2003, were the following amounts associated with Mitchell Gold:

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Note 12—In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which is effective as of the company’s 2003 fiscal year that began December 2, 2002. SFAS No. 142 represents a change in accounting for goodwill. SFAS No. 142 requires that goodwill no longer be amortized and that no later than May 31, 2003, goodwill be tested for impairment at reporting unit level by comparing the reporting unit’s carrying value to its fair value as of December 1, 2002. If any impairment is indicated, it must be measured and recorded before the end of fiscal 2003. SFAS No. 142 requires that any goodwill impairment loss recognized as a result of initial application be reported by the end of the second quarter of fiscal 2003 as an effect of a change in accounting principle, and that the income per share effects of the accounting change be separately disclosed.

Management has engaged a business valuation specialist to assist the Company in the determination of the fair value of its goodwill. The Company will determine if any goodwill impairment is indicated no later than May 31, 2003 by comparing its fair value with its carrying value as of December 1, 2002.

The application of SFAS No. 142 is complex and requires extensive effort. As a result, it is not practical to reasonably estimate the impact of adoption as of the date of this report.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Results of Operations:

Three Months Ended March 2, 2003 Compared to Three Months Ended March 3, 2002

Net shipments during the first three months of 2003 decreased by $3,195,000, or 3.9%, to $78,428,000 from $81,623,000 in 2002. The decrease in shipments resulted from decreased wholesale shipments, due to industry wide soft retail conditions.

For the wholesale segment, net shipments decreased $2.0 million, or 3.4%, to $57.6 million from $59.7 million. The decrease resulted primarily from shipments to existing customers, due to industry wide soft retail conditions, offset in part by some new customers. Included in the wholesale segment numbers above were shipments to the retail segment of $6.7 million in 2003, an increase of $1.2 million over first three months of 2002. In the retail segment, net shipments increased 0.2%, to $27.5 million from $27.4 million.

Gross profit during the first three months of 2003 decreased by $1,206,000, or 4.4%, to $26,297,000 from $27,503,000 in 2002. Gross margin, or gross profit as a percent of net shipments, decreased to 33.5% from 33.7% in 2002 due to certain markdowns at the retail segment as discussed below. The change in 2003 is in part due to weather related retail delivery backlogs.

For the first three months of 2003, wholesale segment gross profit decreased $0.4 million, or 3.2%, from $13.8 million to $13.4 million. Gross margin increased from 23.1% in 2002 to 23.2% in 2003. In the retail segment, gross profit for the first three months declined by 4.5%, or $0.6 million. This is attributable to markdowns taken to clear slow moving product, as gross margin has decreased from 49.7% to 47.4%.

Selling and administrative expenses during the first three months of 2003 decreased by $416,000, or 1.6%, to $25,013,000 from $25,429,000 in 2002. Approximately $326,000 of the decrease represents the cessation of goodwill amortization effective in fiscal year 2003 in accordance with new accounting regulations. Essentially all other categories of selling and administrative costs have declined in 2003 from 2002 levels, with the exception of warehouse costs in the retail segment. This area has been impacted primarily by the combination of two distribution centers into one as part of the retail consolidation undertaken in 2002. Management and operational changes are in place to resolve these issues, and substantial progress has been made to date. Overall, manufacturing segment selling and administrative expenses declined by $0.8 million, to approximately $8.1 million in 2003 from $8.9 million in 2002. Retail segment costs have increased by $0.5 million to $15.4 million in 2003 from $14.9 million in 2002.

Operating income was $1,284,000 for the first three months of 2003 compared to $2,074,000 in the prior year. Lower net shipments, due to soft industry wide retail conditions and inclement winter weather, higher levels of clearance sales at lower margins, and costs to integrate and resolve problems at one retail distribution center, accounted for the decline in operating income.

Net interest expense increased from $1,295,000 in 2002 to $1,647,000 in 2003, primarily as a result of reclassifying payments on the Elliston facility lease from rent to interest expense, and amortization of deferred loan costs in 2003 as a result of the debt restructuring completed in May 2002.

Other income decreased $87,000 during the first three months of 2003, from $482,000 to $395,000.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Earnings before taxes during the first three months of 2003 declined by $1,229,000 to $32,000 from $1,261,000 in 2002, reflecting lower sales, lower retail margins due to increased clearance sale activity, and higher interest costs, offset in part by lower goodwill amortization expense.

The effective tax rate changed between 2002 and 2003 due primarily to the impact of non-deductible expense items, particularly goodwill amortization in 2002, on the calculation of tax expense.

Critical Accounting Policies:

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain estimates and assumptions have been made that affect the amounts and disclosures reported in the consolidated financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in valuing these estimates and may solicit external advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. Critical accounting policies that may affect the consolidated financial statements include self-insurance, restructuring liabilities, long-lived asset valuations and impairments and inventory reserves.

Self-Insurance Reserves

The Company is self-insured for substantial portions of its health care and workers compensation insurance programs. Reserves are established for such costs based on, among other factors, reported claims to date, prior history, and actuarial projections of claims incurred but not reported and future medical cost increases likely to affect the total cost to settle claims. If actual results in any of these areas change from prior periods, adjustments to recorded reserves may be required.

Restructuring Liabilities

During 2002, the Company recorded costs associated with combining its retail operations into one chain. Such costs included severance costs for terminated employees, write-offs of obsolete equipment and costs of leased space no longer needed, such as termination fees or future rent expense in excess of revenue from subleasing such space. Sublease revenue was determined based upon advice from leasing agents as to the expected time needed to find a subtenant and negotiate a sublease, as well as the projected sublease rate. In light of current leasing market conditions, actual time to sublease and sublease rate could vary from such estimates. As conditions warrant, revisions to these estimates may be required.

Long-lived Asset Valuations and Impairments

The Company monitors the economic health of its facilities and operations and makes determinations, using cash flow analyses, of the fair value of its assets, both tangible and intangible. When cash flow analysis indicates that the fair value of an asset is less than its book value, and such shortfall is not believed to be temporary in nature, then an adjustment to reduce the asset to its fair value is made. As conditions change, additional adjustments of fair value may be required.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Inventory Reserves

The Company maintains its inventories at the lower of cost or market value. Cost is determined on a last-in, first-out (LIFO) basis for inventory held at retail facilities, and on a first-in, first-out (FIFO) basis for inventory held at its manufacturing facilities. When conditions warrant (usually highlighted by slow-moving product, declining vendor prices on incoming product or a change in merchandising), reserves are established to reduce the value of inventory to net realizable values. As conditions warrant, additional adjustments may be required.

Liquidity and Source of Capital:

Cash from Operations

Net cash provided by operating activities was $2,231,000 during the first three months of 2003 versus $4,785,000 in 2002. Fluctuations in net cash used in operating activities are primarily the result of changes in operating income and changes in working capital accounts. The most substantial change from 2002 to 2003 was the decrease in inventory, particularly leather, during the early part of 2002. Other significant changes were seen in accounts receivable and customer deposits, reflective of soft industry wide retail conditions.

Cash from Investing Activities

Net cash used in investing activities was $184,000 in 2003 and $264,000 in 2002, and included collections in 2003 on receivables from the sale of Wexford in 2001. Expenditures in both periods were generally routine systems performance maintenance and upgrade projects.

Cash from Financing Activities

Net cash provided by financing activities during the first three months of 2003 was $1,622,000 versus $42,000 provided during 2002. Payments to reduce long-term debt included approximately $280,000 in required debt service payments and approximately $3.5 million in excess cash flow payments based upon fourth quarter 2002 operating performance, as required under the Company’s loan documents. Other payments to reduce debt, and proceeds from issuance of long-term debt, represent fluctuations in the Company’s revolving credit loan balance in response to operating needs. The Company did not pay common stock dividends during either three-month period covered by this report.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

Contractual Obligations

The following summarizes our significant contractual obligations as of March 2, 2002:

Management is in discussion with its lenders to modify the terms of the existing term and revolving credit facilities to reflect (a) reduced collateral for asset based loans from the sale of Mitchell Gold; (b) elimination of earnings and cash flow from operations due to the sale of Mitchell Gold and (c) lower outstanding debt as a result of using net proceeds from the sale of Mitchell Gold to reduce existing loan balances. Weakening of, or other adverse developments concerning operating performance, could limit the availability of funds to us, or adversely affect the price at which such funds may be available.

New Accounting Standards

During 2001, the Financial Accounting Standards Board finalized Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. The Company has adopted SFAS 142 in the first quarter of 2003. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption (see Note 12). The Company is also required to reassess the useful lives of other intangible assets.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated With Exit and Disposal Activities.” SFAS 146 is effective for activities occurring after December 31, 2002. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity.

Currently, the Company is assessing but has not yet determined how the adoption of SFAS 142 will impact its financial position and results of operations. The impact at March 2, 2003 is not yet known as the Company is in the process of completing the valuation of goodwill. This assessment will be completed by the end of May 2003. SFAS 144 and 146 will be applied to transactions as they occur.

Interest Risk Disclosures:

Because the Company’s obligations under its term loans, revolving loans, lines of credit and Industrial Revenue Bonds bear interest at variable rates, the Company is sensitive to changes in interest rates. A 10% fluctuation in market interest rates would not have a material impact on earnings during the 2003 fiscal year.

Forward Looking Statements:

Certain portions of this report, particularly the Notes to the Consolidated Financial Statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I of this report, contain forward-looking statements. These statements can be identified by the use of future tense or dates or terms such as “believe,” “expect,” “anticipate,” or “plan.” Important factors could cause actual results to differ materially from those anticipated by some of the statements made in this report. Some of the factors include, among other things, changes from anticipated levels of sales, whether due to future national or regional economic and competitive conditions, customer acceptance of existing and new products, or otherwise; pending or future litigation; pricing pressures due to excess capacity; raw material cost increases; transportation cost increases; the inability of a major customer to meet its obligations; loss of significant

THE ROWE COMPANIES AND WHOLLY-OWNED SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNAUDITED

customers in connection with a merger or acquisition, bankruptcy or otherwise; actions of current or new competitors; increased advertising costs associated with promotional efforts; change of tax rates; change of interest rates; future business decisions and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company.

Additional risks include:

Our manufacturing and our retailing subsidiaries face significant competition from numerous competitors, many of which are larger and better capitalized. Our subsidiaries may be at a competitive disadvantage as a result. If our subsidiaries lose market share to competitors, our financial performance could be adversely affected.

Our retail operations are currently unprofitable, and there can be no assurance that profitability will be achieved.

PART II—OTHER INFORMATION

Item 1.    Legal Proceedings.

None

Item 2.    Changes in Securities.

None

Item 3.    Defaults Upon Senior Securities.

None

Item 4.    Controls and Procedures.

During the quarter ended March 2, 2003, we evaluated our disclosure controls and procedures and believe that they are effective in the timely recording, processing, summarizing and reporting material financial and non-financial information in our filings.

During the quarter ended March 2, 2003, we did not make any significant changes in, nor take any corrective actions regarding, our internal controls or other factors that could significantly affect these controls. We review our internal controls for effectiveness on an ongoing basis, including routine reviews during this period. We plan to continue our review process, including both internal and external audit examinations, as part of our evaluation of our disclosure controls and internal controls.

Item 5.    Submission of Matters to a Vote of Security Holders.

None

Item 6.    Other Information.

None

Item 7.    Exhibits and Reports on Form 8-K.

a. Exhibits:

99.1 — Officer Certifications

99.A — Certifications

b. Reports on Form 8-K: None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 11, 2003